Google Softens Tone on China

Two Years After Censorship Clash, Company Renews Push to Expand in World's Biggest Internet Market

Google, which pulled its Web-search engine out of mainland China two years ago after a confrontation with Chinese authorities over censorship, has renewed its push to expand there, Spencer Ante reports on Markets Hub. (Photo: Reuters)

By

Amir Efrati And

Loretta Chao

January 12, 2012

Google Inc., which pulled its Web-search engine out of mainland China two years ago after a confrontation with Chinese authorities over censorship, has renewed its push to expand there, in an acknowledgment that it can't afford to miss out on the world's biggest Internet market.

The search giant is hiring more engineers, salespeople and product managers in China and working to introduce new services for Chinese consumers, according to Daniel Alegre, Google's top executive in Asia.

In particular, Google is aiming to capitalize on its fast-growing Android operating system for mobile devices, online-advertising and product-search services to grow in China, Mr. Alegre said in an interview.

One goal, he said, is to introduce its Android Market, which offers thousands of mobile applications to users of Android-powered smartphones and tablets but isn't available in China.

ENLARGE

During Google's 2010 clash with Chinese authorities, cofounder Sergey Brin said China's efforts to censor the Web and suppress dissidents reminded him of the 'totalitarianism' of the Soviet Union, where he was born. 'I find that personally quite troubling,' he added.
Bloomberg News

The company also is trying to win over Chinese consumers with services that don't require official censorship, such as Shihui, which launched in September to help people search among Chinese sites offering discounts at local stores. Google is also working to beef up its product-search service to help consumers find goods from online retailers.

Chinese officials didn't respond to a request for comment.

Google is revving up its new push near the two-year anniversary of its declaration that it would stop censoring its Internet-search results in China, as required by local law, and that it was prepared to leave the country altogether.

The Jan. 12, 2010, announcement represented a stark departure from the policy of compromising with Chinese authorities that Google and other Western technology companies had long followed. And it was perceived by many Chinese as marking Google's total withdrawal from the country.

The censorship fracas began after Google disclosed it had traced a 2009 cyberattack back to Chinese hackers, who allegedly stole some of the company's proprietary computer code and attempted to spy on Chinese activists' Gmail accounts. Chinese officials denied any connection to the incident.

Google subsequently stopped offering Web search on its main Chinese site, Google.cn, and instead directed people to a search site based in Hong Kong, which isn't subject to the same government censorship requirements.

But for users in mainland China, the Hong Kong search site, along with other Google services such as Gmail, are plagued with frequent service disruptions because of the government's Web-filtering system.

A Difficult Search

Since its entry into the Chinese-language world in 2000, Google has struggled to balance its growth ambitions in the vast but restrictive new market while adhering to a self-held principle: "Don't be evil."

Company co-founder Sergey Brin said at the time of the clash that he pushed for the company to take an anti-censorship stance. He prevailed over then-Chief Executive Eric Schmidt and others, who initially felt Google should stay the course in China, people familiar with those discussions have said.

In an interview with The Wall Street Journal back then, Mr. Brin said China's efforts to censor the Web and suppress dissidents reminded him of the "totalitarianism" of the Soviet Union, where he was born. "In some aspects of their policy, particularly with respect to censorship," he added, "I see the same earmarks of totalitarianism, and I find that personally quite troubling."

While Google, which opened its first China office in 2005, shut down many functions there following its decision to stop censoring search results, it says it never abandoned the country. It still has more than 500 employees there, including more than 300 engineers. That's down from about 700 employees in 2009, according to a former Google executive in China.

Now, with Android's growth in China and with more Chinese companies looking to advertise online, Google's decision to reverse course and invest more in China is a "pragmatic" one, said Mr. Alegre.

For Mr. Brin and fellow co-founder and current CEO Larry Page, "there is a very large business opportunity in China, and they recognize it," he said.

Overall, China had more than 500 million Internet users as of September, up from 485 million three months earlier, according to government statistics. By contrast, the U.S. had 220 million Internet users in November, up from 212 million a year earlier, according to research firm comScore Inc.

Google's move comes at a pivotal time for China's Internet industry. Despite the prevalence of government censorship, the Web is increasingly an outlet for Chinese citizens to share information and express discontent, including about the government, amid heightened tensions ahead of the country's once-a-decade leadership transition this year.

Twitter-like microblogging services such as Sina Corp.'s Weibo have become popular platforms for sharing opinions and information about controversial topics, even as Google has sat on the sidelines.

China currently accounts for no more than 2% of Google's total revenue, which is expected to reach more than $40 billion for 2011, according to a Citigroup Inc. analysis.

Google's share of China's Web-search market fell to 17.2% in the third quarter of 2011 from 36% in the fourth quarter of 2009, largely to the benefit of rival Baidu Inc., according to Analysys International, a Beijing-based research firm.

Still, the number of Google Web searches by mainland-Chinese Internet users has risen over the past two years, said Mr. Alegre, who is based in Tokyo and often visits Beijing and Shanghai. Such a gain would theoretically help boost Google's search-ad business, though a company spokesman declined to comment on the matter.

Separately, the company has seen growth in its services that help Chinese advertisers target Internet users—both inside and outside of China—on thousands of non-Google websites and mobile apps.

Overall, Google's revenue in China rose in last year, compared with 2010, Mr. Alegre said, though he declined to go into specifics. "If you look at what has transpired, we're actually very happy with the way our business is progressing" in China, he said.

Google's share of the Chinese online-ad market stabilized at around 7% during the first half of 2011, according to Analysys, down from 10.9% in the second quarter of 2010.

He added that some Chinese Web users "still put up with the frustration of using Google," including Google Maps and Gmail, despite the disruptions.

If it completes its $12.5 billion acquisition of Motorola Mobility Holdings Inc., as expected, Google will own one of China's largest sellers of mobile devices.

Google also wants to make money from Android, which powers nearly 60% of smartphones in China, according to Analysys. The phones there don't come with official Google services like the company's search engine or the Android Market app store. Mr. Alegre said Google continues to discuss carrying Android Market "with various players in the market"—likely Chinese wireless providers—but that he had nothing to announce.

Introducing Android Market could pose some censorship issues for Google. Non-Google app stores that currently run on China-based Android devices filter out apps that violate Chinese regulations.

Google's relations with some arms of the Chinese government have remained rocky. In effect, it pointed the finger at the government in June 2011, when it announced that China-based parties had been trying to gain access to the Gmail accounts of senior U.S. officials, human-rights activists and others.

Such allegations are "unacceptable," a Chinese Foreign Ministry spokesman said at the time. Several months later, however, China renewed Google's license to operate a website in the country. China has accused Google and the U.S. of using Internet freedom issues to meddle in its internal affairs.

A person familiar with the matter has said Google's systems have been repeatedly targeted by China-based hackers since the successful attack in 2009, though this doesn't necessarily imply government involvement, experts say. Mr. Alegre declined to comment.

Many former Google China employees lament Google's diminished status in the country. "What we hoped to accomplish with Google China is now being realized by Weibo," proving that "engagement is the right approach," said former Google China chief Kai-Fu Lee, who left the company in 2009.

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